Walgreen Company (WAG)
Q2 2010 Earnings Call Transcript
March 23, 2010 8:30 a.m. ET

Executives

Rick Hans – Vice President, Investor Relations and Finance
Gregory D. Wasson – President and Chief Executive Officer
Wade D. Miquelon – Executive Vice President and Chief Financial Officer

Analysts

Lisa Gill – J.P. Morgan
Mark Miller – William Blair
Robert Willoughby – Bank of America/Merrill Lynch
Neil Currie – UBS
John Heinbockel – Goldman Sachs
Andrew Wolf – BB&T Capital Markets
Shane Paulhiki – Citigroup
Scott Mushkin – Jefferies & Company
Brian Venge – Barclays Capital

Presentation

Operator

Good day everyone around welcome to the Walgreen Company Second Quarter 2010 Earnings Conference Call. Today''s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference to Rick Hans. Please go ahead, sir.

Rick Hans

Thank you, Augusta and good morning everyone. Welcome to our second quarter conference call. Today, Greg Wasson, our President and CEO, will discuss the quarter''s highlights and sales trends, the flu''s impact on our results, acquisitions, Customer-centric Retailing and the recent restructuring of our healthcare divisions.

Wade Miquelon, Executive Vice President and Chief Financial Officer, will detail the second quarter financial results before we begin taking your calls. When we get to your questions, please limit yourself to one question and a follow-up so that we can give an opportunity to as many investors as possible during our limited time.

As a reminder, I am available throughout the day by phone to answer any additional questions you may have. You can find a link to our webcast under Investor Relations at walgreens.com. After the call, this presentation will be archived on our website for 12 months. We''re also making the call available as a podcast. You can download that too at our Investor Relations website.
Certain statements and projections of future results made in this presentation constitute forward-looking information that is based on current market, competitive and regulatory expectations that involve risk and uncertainty. Please see our latest Forms 10-K and 10-Q for discussion of factors as they relate to forward-looking statements. Now, I''ll turn the call over to Greg.

Gregory D. Wasson

Thank you, Rick and thank you everyone for joining us on our call. Before I move into our quarterly numbers, let me share a few thoughts on the historic healthcare bill that passed the House on Sunday. The bill will impact us both as an employer and a provider and we''ve said all along that we support the three core tenants of healthcare reform, improved quality, greater access to care and lower costs. The bill is expected to provide health insurance to an additional 32 million Americans and we expect to benefit from that as a provider.

As an employer, of 238,000 people, we''ll be examining the impact of the bill on our workforce and our retirees along with the bill''s financial implications. In future calls, we''ll share with you more details of its impact particularly as changes to the Senate bill are directed through the reconciliation process.

Now, let''s move to our quarterly results. Net sales for the quarter were nearly $17 billion, up 3.1% over a year ago. We managed our business in a soft economy and through a significantly lower incidence of flu compared with a year ago.

Net earnings were up 4.6% to $660 million from $640 million a year ago. Earnings per diluted share were $0.68, a 4.6% increase from $0.65 per diluted share last year. The quarter includes the impact of $0.02 per share restructuring related costs compared with an impact of $0.06 in the year-ago quarter.

We continued to generate strong cash flow from operations in the quarter, reaching $595 million. Cash flow not only supported our strategic investments in the quarter, including our announced acquisition of Duane Reade drug stores in New York, but it also allowed us to return $370 million in cash to shareholders through dividends and stock repurchases.

For the first six months of the fiscal year, sales increased 6.1%, while net earnings increased 10.5% to $1.2 billion or $1.17 per share. The unusual pattern of this year''s flu season impacted our overall comparable sales performance for the quarter. Both scripts and front-end sales spiked in the first quarter, when the flu hit hard and were relatively weak in the second quarter when the flu subsided.

This quarter in particular was helped by the 7 million seasonal and H1N1 flu shots that we provided this fiscal year. We remain focused on growing market share through organic store growth, acquisitions, prescription file purchases and strong store execution.